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1. Suppose that I give you the following utility function There are two potential outcomes. With ...
Suppose a person has the utility function, U(I)=log(I), where I is income. He has income I2...
Suppose a person has the utility function, U(I)=log(I), where I is income. He has income I2 ($4,000) with the probability of p, but knows that some externally generated risk may reduce his income to I1 ($1,000) with probability of 1-p. Suppose p=0.8. 1) Is this person risk-averse? If so, why? 2) What is the expected income of this person? 3) What is the utility of expected income for this person? 4) What is the expected utility of this person? 5)...
2. The table below shows the relationship between income (Y) and total utility U(Y) for Mary....
2. The table below shows the relationship between income (Y) and total utility U(Y) for Mary. Use the information in the table to answer the following questions. 4 20 27.9 34 35.6 52 74 3.6 4 (a) Graph the utility function, with Y on the horizontal axis and U(Y) on the vertical. You do not need graph paper. (b) Suppose Mary is offered a bet where with probability 0.6 she will get 2 and with probability 0.4 she will get...
Suppose, as usual, Elmos utility function over gambles satisfies the expected utility property. Consider two gambles...
Suppose, as usual, Elmos utility function over gambles satisfies the expected utility property. Consider two gambles g and h such that E[g] > E[h]. (a) Suppose Elmo is risk-averse. Will Elmo necessarily prefer g to h? Explain. (b) What if Elmo is risk-neutral? Explain. (c) What if Elmo is risk-loving? Explain.
4. Suppose Kate has a utility of income function given in the following table Utilit 0...
4. Suppose Kate has a utility of income function given in the following table Utilit 0 Income 0 100 200 300 400 500 600 700 800 900 1000 12 35 48 58 72 76 78 (a) Kate has a choice between $200 with certainty and receiving $100 with probability 0.5 and receiving $300 with probability 0.5. Which will Kate choose? (b) Kate has a choice between $800 with certainty and receiving $600 with probability 0.5 and receiving $1000 with probability...
2. (a) Explain the terms risk averse, risk loving and risk neutral with the aid of...
2. (a) Explain the terms risk averse, risk loving and risk neutral with the aid of diagrams. Jane's utility (U) depends upon her income( Y) according to the following table U(Y) 50 7 100 9.5 150 200一一 14 250 300 350 12 16.5 17 19 She has received a prize with an uncertain value. In particular, with probability 0.25 she wins $300 and with probability 0.75 she wins $100. (b) What is the expected payoff from this prize? What is...
If so, ind it. I no, explain. 7. Suppose, as usual, Elmos utility function over gambles...
If so, ind it. I no, explain. 7. Suppose, as usual, Elmos utility function over gambles satisfies the expected utility property. Consider two gambles g and h such that E[g]> E[h]. (a) Suppose Elmo is risk-averse. Will Elmo necessarily prefer g to h? Explain. (b) What if Elmo is risk-neutral? Explain. (c) What if Elmo is risk-loving? Explain. QA
John has a utility function given by the expression U(x) = E(r) -½A(s²). Where E(r) is...
John has a utility function given by the expression U(x) = E(r) -½A(s²). Where E(r) is the expected return on an asset and s is the standard deviation of returns on that asset.John has the opportunity to purchase the XJKsecurity that returns 25.9% with 23% probability and returns 8.6% the remainder of the time. The security has a price of $33 and A=11 a) What is the risk-neutral valuation of the XJK security? Recall the risk-neutral value is simply the...
intermediate micro 4. Steve's utility function over leisure and consumption is given by NLY) - min...
intermediate micro
4. Steve's utility function over leisure and consumption is given by NLY) - min (31.7. Wage rate is w and the price of the composite consumption good is p=1. (a) Suppose w = 5. Find the optimal leisure consumption combination. What is the amount of hours worked? (b) Suppose the overtime law is passed so that every worker needs to be paid 1.5 times their current wage for hours worked beyond the first 8 hours, Will this law...
2. Consider two lotteries, A and B. With lottery A, there is a 0.90 chance that...
2. Consider two lotteries, A and B. With lottery A, there is a 0.90 chance that you receive a payoff of S0 and a 0.10 chance that you receive a payoff of $400. With lottery B, there is a 0.50 chance that you receive a payoff of S30 and a 0.50 chance that you receive a payoff of $50, a) Verify that these two lotteries have the same expected value but that lottery A has a bigger variance than lottery...
Which of the following statements describes a risk loving individual? Her certainty equivalent is greater than...
Which of the following statements describes a risk loving individual? Her certainty equivalent is greater than the expected value of the income from the chosen activity Her certainty equivalent is less than the expected value of the income from the chosen activity Her certainty equivalent is equal to the expected value of the income from the chosen activity None of the above
2. The table below shows the relationship between income (Y) and total utility U(Y) for Mary. Use the information in the table to answer the following questions. 4 20 27.9 34 35.6 52 74 3.6 4 (a) Graph the utility function, with Y on the horizontal axis and U(Y) on the vertical. You do not need graph paper. (b) Suppose Mary is offered a bet where with probability 0.6 she will get 2 and with probability 0.4 she will get...
Suppose, as usual, Elmos utility function over gambles satisfies the expected utility property. Consider two gambles g and h such that E[g] > E[h]. (a) Suppose Elmo is risk-averse. Will Elmo necessarily prefer g to h? Explain. (b) What if Elmo is risk-neutral? Explain. (c) What if Elmo is risk-loving? Explain.
4. Suppose Kate has a utility of income function given in the following table Utilit 0 Income 0 100 200 300 400 500 600 700 800 900 1000 12 35 48 58 72 76 78 (a) Kate has a choice between $200 with certainty and receiving $100 with probability 0.5 and receiving $300 with probability 0.5. Which will Kate choose? (b) Kate has a choice between $800 with certainty and receiving $600 with probability 0.5 and receiving $1000 with probability...
2. (a) Explain the terms risk averse, risk loving and risk neutral with the aid of diagrams. Jane's utility (U) depends upon her income( Y) according to the following table U(Y) 50 7 100 9.5 150 200一一 14 250 300 350 12 16.5 17 19 She has received a prize with an uncertain value. In particular, with probability 0.25 she wins $300 and with probability 0.75 she wins $100. (b) What is the expected payoff from this prize? What is...
If so, ind it. I no, explain. 7. Suppose, as usual, Elmos utility function over gambles satisfies the expected utility property. Consider two gambles g and h such that E[g]> E[h]. (a) Suppose Elmo is risk-averse. Will Elmo necessarily prefer g to h? Explain. (b) What if Elmo is risk-neutral? Explain. (c) What if Elmo is risk-loving? Explain. QA
intermediate micro
4. Steve's utility function over leisure and consumption is given by NLY) - min (31.7. Wage rate is w and the price of the composite consumption good is p=1. (a) Suppose w = 5. Find the optimal leisure consumption combination. What is the amount of hours worked? (b) Suppose the overtime law is passed so that every worker needs to be paid 1.5 times their current wage for hours worked beyond the first 8 hours, Will this law...
2. Consider two lotteries, A and B. With lottery A, there is a 0.90 chance that you receive a payoff of S0 and a 0.10 chance that you receive a payoff of $400. With lottery B, there is a 0.50 chance that you receive a payoff of S30 and a 0.50 chance that you receive a payoff of $50, a) Verify that these two lotteries have the same expected value but that lottery A has a bigger variance than lottery...
Which of the following statements describes a risk loving individual? Her certainty equivalent is greater than the expected value of the income from the chosen activity Her certainty equivalent is less than the expected value of the income from the chosen activity Her certainty equivalent is equal to the expected value of the income from the chosen activity None of the above
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